eMailbag Monday: DisneySeek, Digital River, SNAP, GeoCities
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First reader up writes:
"Go.com. Any comment on this Internet portal....the beta version looks good, the stock seems like a good buy, as you know it has gone through the $50 barrier. Any comments?"
Reply: We think Infoseek (NASDAQ:SEEK) may be undergoing a radical transformation in its new endeavor with Disney. The $50 "barrier" refers to Disney's warrants to acquire more SEEK shares but that's what Disney has the right to pay but if you consider the value it brings to the shares that may imply a higher valuation to the public.
It's extremely difficult to quantify what the value of Disney's endorsement, marketing, alliance, partnering, branding, exposure and global presence could be to SEEK. These are intangible benefits of the deal.
On the beta of "go.com" it looks a lot like every other content aggregator on the Web today so we are a little disappointed by the lack of a fresh approach from the powerful creative forces at Disney.
That said, this is a beta. The real value of the agreement between Disney-Infoseek probably won't emerge until after 12 months of them working together, after they apply some marketing muscle and combined brain power to the endeavor. Anytime Disney gets involved expectations run high. That works both for and against it.
"Steve: Digital River surged in the month of December. The future to me looks very profitable with the huge worldwide market that ESD will open up. It seems that investing in Digital River is a no-brainer and an opportunity that I am determined not to miss. Is this a correct assumption or will the growth of Digital River be held up by stiff competition (who would that be?) and the slow advancement of faster network technology like broadband?"
Reply: We've always liked Digital River's (NASDAQ:DRIV) model of an affiliate network which is something the Web does well (look at Amazon, CDNow or any e-tailer and they all do it). Digital River's focus is software without the box, it lets other Web sites sell software and get a small commission while Digital River powers the store and takes the largest cut of the sale. So far so good in our view.
December 24 DRIV said it completed its secondary offering December 10 of 3.45 million total shares at $23.50 per share including the over allotment exercised for an additional 450,000 shares. While DRIV shares suffered from the shares out dilution we think that the new cash could help propel Digital River into a next-generation online software supernetwork. Of shares sold, 1.75 million were from the company and 1.25 million from certain stockholders.
We think the biggest possible competition, and it may or may not emerge, could be software developers selling directly for themselves. Seems unlikely now but if the Web ever gets taken over by software robots and shopping search engines (Junglee is one example of something that may foreshadow this) then virtual stores may replace affiliate networks.
Snap IPO In '99
"First I would like to know what you think of Broadcom as a long term investment. Also, do you think there is a possibility of CISCO acquiring Broadcom (I understand CISCO already has a small interest in Broadcom)?
Second, I heard that the SNAP portal may be an IPO in 1999. Does that mean if I own 100 shares of CNET I would get 50 shares of SNAP in a spin-off since CNET jointly owns SNAP along with NBC?"
Reply: We think Intel (NASDAQ:INTC) may make the perfect Broadcom (NASDAQ:BRCM) acquirer and said so in our first Broadcom analysis before its IPO - (click here to see that report. A chip is a chip. Intel is the king of PC chips. If Broadcom is the princess of broadband chips maybe that's a Cinderella story combo in the making.
About SNAP, we think NBC (which has taken the reins on it) has a long way to go to turn it into a page view and revenue generator to get Wall Street's attention. CNET shareholders receiving part of SNAP equity is up to CNET if and when a SNAP IPO ever happens.
"With the solid and sound background of GCTY, wonder how come the price so low and stagnant compared to others Internet stocks. What's wrong with GCTY??"
Reply: Don't think anything is necessarily "wrong" with GeoCities (NASDAQ:GCTY) it's just in the process of building out its revenue model in our opinion. The pop up banner ads are annoying and the constant "g" logo on the lower right is an attempt to be more like TV in its branding but stutters as it hovers over the page.
We see a lot of potential with the overall metaphor GeoCities is but we don't think it's as a portal clone or as an advertising-based company.
Through December 21, Steve Harmon's top 10 Internet
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